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WHEAT SCOOPS: How did we get $7.20 wheat?

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Production estimates of the last 20% will determine if prices go up or down from $7.20.

On Aug. 13, Perryton, Texas, wheat prices reached $7.50. The wheat price in Medford Okla., was $7.20. The demand for wheat as feed in the Oklahoma and Texas Panhandles explains the difference between $7.50 and $7.20 wheat. 

Wheat harvest in the Oklahoma and Texas Panhandles started (early June) with wheat prices above $6 (Figure 1). After the June WASDE (World Agricultural Supply and Demand Estimates) was released, wheat prices declined.  

The June WASDE projected U.S. wheat production to be 1.90 billion bushels with ending stocks to be 770 million bushels. World wheat production was projected to be a record 29.2 billion bushels, and world ending stocks were projected to be 10.9 billion bushels. The June WASDE indicated that there would be more than adequate wheat available to meet the demand in the 2021/22 wheat marketing year.  

In mid to late-June, market analysts reported problems with the U.S. and Canadian spring wheat crops. Wheat prices rallied from $5.70 and went up to $6.34 (June 20). The $6.34 price was a “one day wonder.” In one day, prices increased 31 cents to reach $6.34 and during the next three days fell 72 cents.  

See, COTTON SPIN: Current, future surprises will drive prices

The July WASDE projected U.S. wheat production to be 1.75 billion bushels and ending stocks to be 665 million bushels. World wheat production was projected to be 29.1 billion bushels and world ending stocks to be 10.7 billion.  

Lower U.S. wheat production resulted in wheat prices going above $6.20, but world production and ending stocks limited the price move. Hard red spring wheat production of 520 million bushels also supported higher wheat prices.  

In mid-July, market chatter indicated that Russian wheat production may not be as high as projected. The June WASDE projected Russian wheat production to be 3.16 billion bushels. The July WASDE lowered Russian wheat production to 3.12 billion bushels. The August WASDE estimated Russian wheat production at 2.66 billion bushels. 

In late July and early August, market reports indicated that U.S. and Canadian hard red spring wheat production may be 30% lower than in 2020. The June WASDE projected Canadian wheat production to be 1.175 billion bushels. The production projection was lowered to 1.157 billion bushels in July and to 881 million bushels in the August WASDE. 

In early August, reports indicated that rain in France was lowering the quality of a near record crop. Recent reports estimate that less than 40% of 2021 harvested French wheat is flour milling quality. France produces mostly soft red wheat. 

Higher wheat production projections for Ukraine, Australia, and India may limit upside price potential. Ukraine is projected to produce a record 1.2-billion-bushel wheat crop compared to 934 million bushels produced in 2020.  

Australia is projected to produce 1.1 billion bushels compared to a five-year average of 866 million bushels.  

Indian wheat production is projected to be a record 3.968 billion bushels. India is implementing new market procedures to promote exporting wheat. 

By September 1, about 80% of the 2021/22 world wheat crop will be in the bin. Production estimates of the last 20% will determine if prices go up or down from $7.20.

TAGS: Outlook
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